Shareholders demand info about political contributions

An improbable group of activists are leading efforts to regulate the flood of money pouring into the 2012 election from corporations and unions: shareholders and investment firms.

Increasingly they are demanding more transparency from corporations regarding political contributions, especially after the landmark Citizens United ruling by the Supreme Court in January 2010 loosened rules on business donations to campaigns.

“The justices basically encouraged shareholder activism, by saying if there are abuses in political spending, shareholders can handle it,” said attorney Laura Gill, partner at Denver law firm Davis, Graham & Stubbs. “It’s becoming such a hot-button issue, when they go down the ranks of publicly traded corporations, you’re going to see some Colorado companies get letters [from shareholders] to take a pledge against making political contributions.”

The Supreme Court ruling lifted a longtime ban on the unlimited use of corporate treasury funds for political purposes, and also led to the creation of Super PACs, which are allowed to accept unlimited funds from corporations, unions, trade associations and nonprofits.

The only real limitation on Super PACs is that they aren’t allowed to give money directly to candidates or coordinate their efforts with candidate campaigns.

“We knew that the Supreme Court’s decision would open the floodgates [of money pouring into elections],” said attorney Chantell Taylor, who specializes in government regulation and legislative matters for the Denver office of Hogan Lovells LLP. “This election cycle is nothing short of a tsunami.

“I don’t think anyone would say they anticipated this much new money coming in.”

As of Feb. 7, 313 groups organized as Super PACs nationwide have reported total receipts of $98.6 million and total independent expenditures of $46.2 million in the 2012 election cycle, according to Opensecrets.org.

The “Restore our Future” Super PAC, which supports Republican presidential candidate Mitt Romney, has raised the most in this election cycle at $30.1 million.

Even President Barack Obama, who has warned of the dangers of Super PACs, on Feb. 6 urged wealthy fundraisers to support Priorities USA, a Super PAC led by two former Obama aides.

“We have an election cycle where $100,000 is pennies on the dollar,” Taylor said. “It’s alarming the amount of money coming in. And it’s not just the amount of money coming in, but it’s the lack of transparency about where it’s coming from.”

Shareholders are fighting back, pressuring corporations to reveal how they’re spending money in elections, and in some cases, asking companies to refrain from making political donations altogether.

In January, two institutional shareholder investment firms filed shareholder resolutions at three companies — Bank of America, 3M and Target — asking them to stop making political contributions.

Trillium filed the proposals at Minneapolis-based 3M Co. (NYSE: MMM) and Charlotte, N.C.-based Bank of America (NYSE: BAC). Green Century Capital filed a proposal with Minneapolis-based Target Corp. (NYSE: TGT), which in 2010 became the poster child for what can go wrong with corporate political contributions.

Target, known for its progressive policies, sparked a shareholder and customer backlash in the summer of 2010, after it gave $150,000 to Minnesota Forward, which supported a gubernatorial candidate who opposed gay marriage.

“Sometimes political giving blows up in their face, like in the Target situation,” said Luis Toro, director of Colorado Ethics Watch, a nonprofit watchdog group focusing on Colorado public officials and organizations. “So far the response of some corporate managers has been to fight against transparency, and I don’t think that’s going to work. It’s really hard to argue that you should be able to keep shareholders in the dark.”

One of the problematic aspects of the Supreme Court’s Citizens United ruling was the argument that corporations should be treated like people, so corporations have a right to free speech, Toro said.

“It’s blurring the distinction between commercial and political speech,” he said.

Toro expects the next step after shareholder resolutions will be shareholder lawsuits from investors upset with unfettered corporate spending on specific political campaigns.

“Shareholders are legitimately concerned that corporate funds are being used as the personal piggy bank of some managers to advance their own political beliefs,” he said.

NorthStar Asset Management of Boston, a firm that focuses on socially responsible investing, filed a proposal last year with Atlanta-based Home Depot (NYSE: HD) that would give shareholders the chance to vote for or against Home Depot’s campaign contributions.

Home Depot, one of the 30 companies in Northstar’s portfolio, disclosed its political donations and “was proud of its policies around political giving,” said Julie Goodridge, president of NorthStar.

But the company had given money to a candidate in Virginia who wanted to roll back protections for the lesbian, gay, bisexual and transgender community in his state, and that didn’t fit with Home Depot’s, or NorthStar’s, values, she said.

“Up until [shareholders] started filing these proposals, companies haven’t paid attention to whether their corporate values, as they define them for consumers, investors and employees, are lined up with their political giving,” Goodridge said.

Home Depot urged shareholders to vote against the proposal, and it was defeated soundly, with about 95 percent of shareholders voting against it.

Still, business executives are watching because such resolutions could be used as templates for similar proposals at their companies.

“Colorado corporations should be thinking about this on many levels, from a governance perspective,” Taylor said. “They need to be mindful of campaign restriction laws and think about the kind of disclosure they want to have with shareholders. Corporations may want to volunteer that information to shareholders.”